Except for CEOs and politicians, there is no free lunch. Mutual funds have costs. The brokers who sell them must be paid and the funds themselves must cover their costs and make a profit. So what are these costs?

Mutual funds can have two very different cost structures: load and no-load. Load funds are funds sold by brokers and salesmen and carry hefty fees to compensate the seller. No-load funds are purchased directly from the mutual fund companies or on the advice of fee-only advisors (like me) through a mutual fund platform like Schwab or TD-Ameritrade.

Every mutual fund has a set of expenses, called an expense ratio which pays the expenses, salaries, profits, etc. of the fund. Index funds have low expenses, around 50 basis points (100 basis points equals 1 percent, 50 basis points equals .5 percent).

Managed mutual funds have expenses anywhere from 75 basis points to 200 basis points, or 2 percent. Bond funds tend to have the lowest ratios and foreign funds the highest, but it can be all over the lot. In effect you are paying for the money management skills of the mutual fund team.

A manager must work hard to bring you a total return that at least matches the total return of the index funds because of the larger expense ratios. There are many good managers out there who can do this and the arguments over index versus managed funds are many. And that’s a tale for another day.

If you don’t buy directly from a fund company or on the advice of a fee-only planner, you must buy load funds through a broker, bank or insurance salesman. You will be sold either “A”or “B” share funds.

A-share funds have a front load, usually 5 percent, which is deducted before the money is put to work. So, for example, if you invest $10,000, $500 goes to the brokerage firm and $9,500 is put to work in the fund. Note that you are still paying the expense ratio charged by the mutual fund, as well.

So in that first year, the fund must earn at least 6 or 6.5 percent just for you to break even. Oh, and a dirty little secret for A-shares and indeed some no-load funds is that they may also carry an additional fee called a 12b-1 fee, which is paid to the broker or the platform for “ongoing service.”

This fee is typically about 25 basis points, but can be higher, so if you purchase A-shares be sure to ask if there are 12b-1 fees as well and, if so, why?

B-shares are backloaded. Your full $10,000 is put to work, but each year a percentage of the fund’s value goes to the broker. The catch is that you must hold the fund for five years or pay a penalty.

If you sell the fund in the first year, 5 percent is deducted. In year two, it is 4 percdent, etc. After five years, B shares convert to A-shares. But remember, like A-shares, each year you are also paying the fund’s expense ratio and A-shares continue to have 12b-1 fees.

So, there you have in a nutshell all you wanted to know about costs. Next time we’ll have fun with taxes.